If you are either one of the regular readers of this column, you know that September is “Make a Will Month” (don’t ask us who makes these declarations). During the past few weeks we’ve extended the spirit of this admonition to other estate planning issues. This week we’ll cover the fascinating topic of life insurance, and help you get the right amount and right kind from the right place.
Wait, HOW much???!!
As a rule of thumb, if anyone is relying on you and/or your income, you want to leave them enough money so that their mourning is only about the loss of your presence, and not the loss of your paycheck. This situation is most pertinent when it comes to parents of minor children. To figure out how much you would need to leave your survivors, add up your typical monthly expenses, and multiply that figure by how long it might be until the kids may be able to fend for themselves. Then include any extra costs that a parent might cover for a kid, such as college, a wedding, or a down payment on a house. The result is how much you should hope to leave the kids if you’re not around to provide them. For instance, let’s say a mother and father have two toddlers, and are spending about $4,000 in a typical month. Those kids will probably need financial support for about fifteen years, and then the college costs will begin. Therefore the parents would multiply the fifteen years times twelve months, and then by the $4,000 per month the family spends. The result is about $720,000. They would then add about $150,000 for each child’s future higher education expenses, leaving a grand total of around a cool million bucks.
Where to get that money
Hardly any young families have that kind of money, so the best way to cover the potential loss of income and support is through life insurance. Policies should be purchased covering the lives of working parents, as well as stay-at-home moms and dads. Hopefully the parents in the example above could get $1,000,000 of coverage on each of their lives, but at a minimum should be able to get $500,000 per parent.
The best type of policy
For most families, the most affordable way to obtain this level of life insurance coverage is via “term” life insurance. A term life insurance policy generally has flat premiums, and lasts for a certain period of time (or “term”). Generally speaking, if the insured doesn’t die within the period of coverage, the insurance expires. But hopefully, the parents will have timed the expiration of the policy to coincide with their children reaching adulthood and independence. Because the length of coverage is limited, term life insurance is generally much less expensive than permanent, “cash-value” life insurance. According to the website Term4Sale.com, a 30 year-old male in good health can get a 20 year term life insurance policy for about $22 per month. A female of the same age and health would pay about $18 per month.
At work, or on your own?
Many workers can purchase term life insurance through their employers, often with a lower level of health screening than if the workers were to purchase the policies on their own. This arrangement can be advantageous if you have health issues that would preclude you from getting coverage at the lowest cost. Otherwise, you may be better off purchasing the policy on your own. You can compare quote from different companies at the aforementioned Term4Sale site, or contact your life insurance agent. You can also search for an independent insurance agent by visiting trustedchoice.com Now if you’ll forgive us, we’re going to take next week off so that we may contemplate our own mortality, and make sure we’ve prepared for the inevitable (and by “inevitable”, we of course mean the “end of Make a Will Month”).